Stock Trading – Wait for the Reason and Miss the Opportunity

In How to Trade in Stocks, Jesse Livermore discussed “the folly of trying to find out a good reason why you should buy or sell a given stock.”

He wrote in the context of the behavior of U.S. stocks, whose four major sectors – including steel makers – had risen after World War 2 began. While other sectors continued to advance, U.S. steel stocks stopped rising.

Livermore wrote that there must have been a good reason why the steel stocks had stopped rising but he didn’t know what it was.

It was not until four months later that the public was given the facts and the action of the steel stocks – which had by now fallen 26 to 29 points – was finally explained. The British and Canadian governments had been selling large volumes of shares in U.S. steel makers. (Presumably to fund their war efforts.)

The Action of the Market Should be Reason Enough

“If you wait until you have the reason given, you will have missed the opportunity of acting at the proper time!

“The only reason an investor or speculator should ever want to have pointed out to him is the action of the market itself.

“Whenever the market does not act right or in the way it should – that is reason enough for you to change your opinion and change it immediately.

“Remember: there is always a reason for a stock acting the way it does.

“But also remember: the chances are that you will not become acquainted with that reason until some time in the future, when it is too late to act on it profitably.”